Financial News

[Cknolls]

Same can be said of any index, and for both ups and downs. What is your point?

 

 

Easy sparky. Just making an observation.

[NorthSideSox72]

Easy sparky. Just making an observation.

No really, I am asking because I want to know, not being snarky. Are you saying what most of the pundits are now, that we're overbought and about to slide down a bit? Or are you saying we are in for a BIG drop?

 

[kapkomet]

IMO, we're going to stagnate, the drop's going to happen next summer. There's our double dip.

[Balta1701]

IMO, we're going to stagnate, the drop's going to happen next summer. There's our double dip.

Thankfully that's when a good fraction of the stimulus's actual project/job creation spending will be hitting, but unfortunately most of the tax credits have already hit.

 

The double-whammy of the job losses and the continuing collapse of the housing market, combined with the damage to the commercial real estate markets, could certainly do that. It really is hard to see how we'll get out of this on a long-term basis without cutting off the housing collapse/foreclosures, which just keep going up. A serious green jobs boom might be the only thing I can imagine doing it.

[NorthSideSox72]

Thankfully that's when a good fraction of the stimulus's actual project/job creation spending will be hitting, but unfortunately most of the tax credits have already hit.

 

The double-whammy of the job losses and the continuing collapse of the housing market, combined with the damage to the commercial real estate markets, could certainly do that. It really is hard to see how we'll get out of this on a long-term basis without cutting off the housing collapse/foreclosures, which just keep going up. A serious green jobs boom might be the only thing I can imagine doing it.

continuing collapse of the housing market? where are you seeing any indication of that? You are right of course about the job losses, and the fact that the commercial real estate market still has a lot of risk... but the housing market continuing to collapse? I have seen nothing of that sort. I think the "collapse" went on for quite a while, and it seems an abundance of evidence says that we're flattening and even improving in some areas now.

 

[southsider2k5]

continuing collapse of the housing market? where are you seeing any indication of that? You are right of course about the job losses, and the fact that the commercial real estate market still has a lot of risk... but the housing market continuing to collapse? I have seen nothing of that sort. I think the "collapse" went on for quite a while, and it seems an abundance of evidence says that we're flattening and even improving in some areas now.

 

We haven't seen the real unemployment wave go through yet. As long as things are this bad in the employment sector, the housing sector can't recover.

[Balta1701]

continuing collapse of the housing market? where are you seeing any indication of that? You are right of course about the job losses, and the fact that the commercial real estate market still has a lot of risk... but the housing market continuing to collapse? I have seen nothing of that sort. I think the "collapse" went on for quite a while, and it seems an abundance of evidence says that we're flattening and even improving in some areas now.

Right here

Among U.S. homeowners with mortgages, a record 7.58 percent were at least 30 days late on payments in August, up from 7.32 percent in July, according to the data obtained exclusively by Reuters.

I see no reason why that should be any sort of seasonally adjusted trick like some data is.

 

Housing prices have started to slowly level off in some regions as people come in bargain-hunting. But there's every reason to believe that the foreclosure problem is going to get worse before it gets better. The ARM recasts are just now beginning to roll through, and there are a huge number of borrowers there who are simply underwater and have no reason to pay off the loan. Just look at the numbers:

Fitch said 94 percent of borrowers elected to make minimum payments only. The shortfall gets added to their loan balance, which is called negative amortization. The amount they owe can grow substantially.

The government has neglected to avoid doing anything that might piss off the banks. That includes anything that would give people legitimate ways out of these loans, even through bankruptcy. They're going to be a major drag for years...and combine that with a weak job market and you've got a recipe for a double-dip, esp. if the government pulls back on the stimulus spending as the 2010 election approaches.

[kapkomet]

Right here

I see no reason why that should be any sort of seasonally adjusted trick like some data is.

 

Housing prices have started to slowly level off in some regions as people come in bargain-hunting. But there's every reason to believe that the foreclosure problem is going to get worse before it gets better. The ARM recasts are just now beginning to roll through, and there are a huge number of borrowers there who are simply underwater and have no reason to pay off the loan. Just look at the numbers:

 

The government has neglected to avoid doing anything that might piss off the banks. That includes anything that would give people legitimate ways out of these loans, even through bankruptcy. They're going to be a major drag for years...and combine that with a weak job market and you've got a recipe for a double-dip, esp. if the government pulls back on the stimulus spending as the 2010 election approaches.

 

LMAO. That's when the majority is supposed to hit is mid-to-late summer next year. Now why is that? Bueller.... Bueller... Bueller...

 

With that said, my "summer" was too vague - the more specific response is right at election time next year things will start really tanking, because that's when GDP will nose dive again, AND inflation will start sparking right at the same time. Especially if you keep up the damn printing presses rolling just to pay for the printing presses this year (monitization of the debt is going to make us Zimbabwe pretty damn soon if this keeps up).

[Balta1701]

[/b] Especially if you keep up the damn printing presses rolling just to pay for the printing presses this year (monitization of the debt is going to make us Zimbabwe pretty damn soon if this keeps up).

Except the Bond markets don't say that one bit.

[NorthSideSox72]

Except the Bond markets don't say that one bit.

And the housing market doesn't match your dire concerns either - foreclosure rates are pretty stable (small rises and falls, as you indicate), prices have been stable for months, sales of existing homes stable or up for months, new construction still going down quickly (yes, this is a good thing)... everything indicates its hit a bottom, MORE OR LESS (not going to get into which month exactly here, whether it was July, or will be September, or whatever).

 

Now, I do agree that unemployment is the X factor. If it does what the markets are anticipating right now - flirt around the 10% mark, just a bit above maybe, stabilize, then maybe back down mid-next year - then the housing recovery will continue. If unemployment spikes big next year, say above 11%, then the recovery stalls, and the housing markets stays at its lows or dips a bit, depending on how things look.

 

[NorthSideSox72]

Right here

I see no reason why that should be any sort of seasonally adjusted trick like some data is.

 

Housing prices have started to slowly level off in some regions as people come in bargain-hunting. But there's every reason to believe that the foreclosure problem is going to get worse before it gets better. The ARM recasts are just now beginning to roll through, and there are a huge number of borrowers there who are simply underwater and have no reason to pay off the loan. Just look at the numbers:

 

The government has neglected to avoid doing anything that might piss off the banks. That includes anything that would give people legitimate ways out of these loans, even through bankruptcy. They're going to be a major drag for years...and combine that with a weak job market and you've got a recipe for a double-dip, esp. if the government pulls back on the stimulus spending as the 2010 election approaches.

 

 

I take serious issue with this quote:

 

Fitch said 94 percent of borrowers elected to make minimum payments only. The shortfall gets added to their loan balance, which is called negative amortization. The amount they owe can grow substantially.

 

The first sentence is probably true, as it is for people of any mortgage holding at all. But the second and third are simply not true at all, and I suspect the author of the article took a fact from the Fitch report, and interjected their own conclusion (which is why it isn't a direct quote). A variable rate, interest-only ARM (the kind they are referring to here), have you pay a fixed interest amount for the first X years (1, 3, 5) and no principal. There is NOTHING ADDED TO THE BALANCE. It in fact stays the same, but of course therein lies some risk - that means when the variable rate kicks in, and so does the addition of principal payments, then the payment total goes up, possibly a lot (if the rates have gone up - fortunately for most, they have not).

 

This seriously pisses me off when people write stuff that is manifestly false. It gives people reasons to panic that are completely unfounded in truth.

 

Anyway, here is another thing to consider - many people with ARM's that will reset in the near future, will actually end up SAVING MONEY. The payment will go up only slightly, but because the LIBOR and other pinning rates are still so low, the variable rate will in many cases be less than the locked rate was. For example... if your interest-only payment was $1000 a month with a pegged rate of 6%, and the reset value is LIBOR+2, your new interest rate is actually about 4.5%. That is less than you pay now. But the overall payment still goes up, because you start paying principle, and at an slightly higher pace than a traditional mortgage (X/30 faster). So your payment might become, say, $1200 - but only $800 is interest.

[southsider2k5]

Well the people who can get mortgages again that is...

[Rex Kickass]

I take serious issue with this quote:

 

 

 

The first sentence is probably true, as it is for people of any mortgage holding at all. But the second and third are simply not true at all, and I suspect the author of the article took a fact from the Fitch report, and interjected their own conclusion (which is why it isn't a direct quote). A variable rate, interest-only ARM (the kind they are referring to here), have you pay a fixed interest amount for the first X years (1, 3, 5) and no principal. There is NOTHING ADDED TO THE BALANCE. It in fact stays the same, but of course therein lies some risk - that means when the variable rate kicks in, and so does the addition of principal payments, then the payment total goes up, possibly a lot (if the rates have gone up - fortunately for most, they have not).

 

This seriously pisses me off when people write stuff that is manifestly false. It gives people reasons to panic that are completely unfounded in truth.

 

Anyway, here is another thing to consider - many people with ARM's that will reset in the near future, will actually end up SAVING MONEY. The payment will go up only slightly, but because the LIBOR and other pinning rates are still so low, the variable rate will in many cases be less than the locked rate was. For example... if your interest-only payment was $1000 a month with a pegged rate of 6%, and the reset value is LIBOR+2, your new interest rate is actually about 4.5%. That is less than you pay now. But the overall payment still goes up, because you start paying principle, and at an slightly higher pace than a traditional mortgage (X/30 faster). So your payment might become, say, $1200 - but only $800 is interest.

 

So do you think that the Fed is keeping interest rates so low right now because of this ARM reset wave?

[NorthSideSox72]

Well the people who can get mortgages again that is...

I was talking about the people already in ARM's. Very few new ARMs being written.

 

Its a very small sample size, but I've talked with a few people getting mortgages lately, and even with less than ideal credit they are getting them, and at low rates. Oddly, the one person I've talked to who had issues, was actually someone with very good credit and 50% to put down - but they have some complicated financial holdings, and apparently the banks are strangled with new paperwork that isn't very flexible. Anyone outside the box causes issues, apparently.

 

[NorthSideSox72]

So do you think that the Fed is keeping interest rates so low right now because of this ARM reset wave?

I'm sure some of the folks who like conspiracy theories would think so. I think its a reason, but a smaller one amongst a pile of others.

 

[Cknolls]

No really, I am asking because I want to know, not being snarky. Are you saying what most of the pundits are now, that we're overbought and about to slide down a bit? Or are you saying we are in for a BIG drop?

 

 

I am still very skeptical of this rally. As I said a couple weeks ago, I am short above 1044 with a stop just over 1120. Everyone is expecting this market to retrace 50% of the bear mkt, i.e., 1120. For that reason, I am leery of the mkt actually attaining this level. The same could be said for the selloff everyone is waiting for. Watchpot never boils.

 

Yes, I do believe we will selloff. Will it be a BIG drop? Well if a possible move down to 840 is a BIG drop, then yeah. More likely is a test of the 986 level. But I believe the BIG DROP will occur between late next year and 2012. BIG DROP= SPX 475-500.

[Cknolls]

We haven't seen the real unemployment wave go through yet. As long as things are this bad in the employment sector, the housing sector can't recover.

 

 

Bingo. Also there is another massive wave of resets occurring next year and 2011. Granted they will reset with rates from a lower level but will still hit with increased principal payments to borrowers.

[kapkomet]

Except the Bond markets don't say that one bit.

Look at the M3 #'s and tell me that we don't have a major problem.

[NorthSideSox72]

Interesting on the Housing market topic - Kirk Homebuilders, a major player in the Chicago area, had its bankruptcy reorganization plan rejected by the court, and they are now out of business.

 

This is actually, probably, a good thing, since the market for new home builders was waaaaaaaaaay oversaturated (and may still be).

 

[StrangeSox]

Ghost Fleet of the Recession

[southsider2k5]

Quote of the Day

 

A market analyst is an expert who will know tomorrow why the things he predicted yesterday didn't happen today...

[Balta1701]

Found this interesting and would welcome reactions.

Let's start with the $1.45 trillion that the Fed has committed to propping up the mortgage market -- money that, for the most part, was simply printed. Effectively, most of that has been used to buy up bonds issued by Fannie Mae and Freddie Mac from investors, who turned around and used the proceeds to buy "safer" U.S. Treasury bonds. At the same time, the Fed used an additional $300 billion to buy Treasurys directly. With all that money pouring into the market, you begin to understand why it is that Treasury prices have risen and interest rates fallen, even at a time when the government is borrowing record amounts of new money.

 

As it was printing all that money, the Fed was also lowering the interest rate at which banks borrow from the Fed and each other, to pretty close to zero. What didn't change was the interest rate banks charged everyone else. As a result, "spreads" between what banks pay for money and what they charge are near record highs.

 

So who is borrowing? By and large, it's not households and businesses, which are reluctant to borrow during a recession. Rather, it's hedge funds and other investors, who have been using the money to buy stocks, corporate bonds and commodities, driving prices to levels unsupported by the business and economic fundamentals.

 

The excess liquidity is even being used to finance a new "carry trade" in which global investors borrow at U.S. rates and buy government bonds in places like Australia, where prevailing rates are higher. Because the carry trade involves exchanging dollars for foreign currencies, it has been a major contributor to the recent decline in the dollar.

 

Naturally, this has been a blessing for Wall Street's biggest banks, whose trading desks have not only made big money executing and financing the investment strategies of others, but have also been trading actively for their own accounts. And with bubble profits come bubble bonuses.

 

Back at the Fed, the attitude has been to welcome anything that strengthens the balance sheets of banks, particularly while they continue to write off billions of dollars in soured loans each quarter. Nor is the central bank in any rush to begin pulling back from its current policies. Citing the mistakes made by their predecessors during the Great Depression and by the Bank of Japan during the "lost decade" of the 1990s, Fed officials are determined not to snuff out the economic recovery by moving too early to raise interest rates and reduce liquidity.

 

But the lesson I prefer to focus on is the one from this decade, which is that central bankers ignore financial bubbles at their peril. Given the new architecture of global finance, the Fed can no longer think of its job solely in terms of the trade-off between inflation and unemployment. Nor should it become complacent about restrained consumer prices while ignoring rapidly rising prices for financial assets. As Alan Greenspan discovered, it is also a mistake for central bankers to assume that they can quickly sop up excess liquidity whenever they decide the moment is right.

[southsider2k5]

Found this interesting and would welcome reactions.

 

Let me put it this way. If you believe Obama's green shoots, this would be a good way for the banks to get healthy. If we ended up double dipping, it is going to get ugly.

[kapkomet]

Let me put it this way. If you believe Obama's green shoots, this would be a good way for the banks to get healthy. If we ended up double dipping, it is going to get ugly.

I can't see how we don't double down on the recession. The reason the bond market is "ok" is because the US treasury keeps buying its own bonds with the money that they keep printing. It cannot work that long.

 

[southsider2k5]

So now it looks like instead of making it 50 years, SSI will go negative NEXT year.

 

http://hotair.com/archives/2009/09/22/excl...its-in-2010-11/

 

Four years ago, George W. Bush attempted to reform the entitlement program Social Security, warning that the system was accelerating into collapse and would soon run deficits. Democrats scoffed and claimed the Social Security system was solid and wouldn’t have problems for at least 50 years, as Harry Reid told PBS’ Jim Lehrer in June 2005. Just last year, the CBO — under the direction of Peter Orszag, now budget director in the Obama administration — claimed that the first cash deficits in Social Security would not come until 2019.

 

Now, however, the CBO has determined that Social Security will run cash deficits next year and in 2011, and by 2016 will be more or less in permanent deficit mode. Hot Air has exclusively obtained the summer 2009 CBO report sent to legislators on Capitol Hill but not yet made public, which shows that outgo will exceed income for the first time since the 1983 fix on an annual basis in 2010:

 

More at link.